Generally, owners of small businesses like to concentrate on running their business without getting too distracted by financial gray areas. It is so much easier to focus on the cash coming in and the cash going out to judge whether the business is going well or not. But cutting that cash going out is a priority, and one of the biggest drains is tax. At the same time, every business soon discovers that there are some costs that have to be spread over a longer period, like running a vehicle. Can buying a truck be a way to reduce your tax liabilities?
The running costs of a vehicle which you use for your business can be shown as an expense deducted from your profits before tax is due. These running costs include the fuel and oil, the servicing and repair costs, parking dues, and cleaning. They also include things like the interest on any loan that you took out to buy the vehicle, the cost of insuring it, and the licence fee.
Capital Cost Allowance
If you purchase the vehicle, you can also claim back tax on the value of the vehicle itself. Because it is a major capital expense that you benefit from over several years, the tax does not all come back as soon as you have paid for the truck, but is spread over the years that you use it.
The amount of CCA that you can claim depends on the type of vehicle. For tax purposes, there are two types, motor vehicles and passenger vehicles—although, confusingly, a passenger vehicle is defined as a particular type of motor vehicle!
The CCA is calculated as a proportion of the cost of the vehicle (capped in the case of a passenger vehicle) plus the Goods and Services Tax and the Provincial Sales Tax.
If you are buying a truck like a Ram 1500, whether it is counted as a motor or passenger vehicle depends largely on the proportion of business miles that it does, relative to private use. A vehicle that has room for more than two passengers besides the driver would normally be counted as a passenger vehicle if more than 10% of its use is for private purposes.
All the tax allowance, on both the CCA and the running expenses, relates only to the proportion of the mileage that you do while on business. If you also use the vehicle for private use—driving to and from work, for instance—you cannot claim for that part of the costs.
For both these reasons, it is very important that you keep an accurate record, noting separately the mileage you do on private and business use.
Do the Math
If you need a truck to run your business, there are some tricky sums to do to work out the best way to pay for it. One of the calculations will involve the tax reductions that you can claim. An accountant will be able to make the calculations for you, but the decision will be yours.
Taylor Bryant runs his own business and has a fleet of company vehicles so understands about buying and selling company vehicles; he shares his knowledge in his articles.